Assume That MM's Perfect Capital Markets Conditions Are Met and That

question 110

Multiple Choice

Assume that MM's perfect capital markets conditions are met and that you can borrow and lend at the same 5% rate as With.You have $5000 of your own money to invest and you plan on buying With stock.Using homemade (un) leverage you invest enough at the risk-free rate so that the payoff of your account will be the same as a $5000 investment in Without stock.The number of shares of With stock you purchased is closest to:

• A)100
• B)425
• C)1650
• D)825
• E)1000

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Definitions:

Income Statement

A financial statement showing a company's revenue and expenses, indicating the net profit or loss over a specific period.

Fixed Manufacturing Overhead

Costs associated with manufacturing that do not vary with the level of production, such as salaries of managers and depreciation of equipment.

Direct Labor

The cost associated with employees who directly contribute to the manufacturing or production of goods, redefined as the labor directly tied to the creation of a product.

Raw Material

The basic materials and substances that are used in the production of goods, typically transformed through manufacturing processes.